Wednesday, March 11, 2009

The Florida Opportunity Fund as I see it....


Okay... I finally was able to get the info on the Florida Opportunity Fund. (This is the 30M dollars given by the State to help fill the funding gap for startups to VC's, and also attract more capital to the State by investing with VC funds, Angel funds (inside and outside the State).

I am not sure what the best use of the funds would be - but let me start by saying 30M is a tough number to work with. Its not enough to really attract big V.C.s who manage 250M+ funds and its not enough to really spark new angel funds... (e.g. make some good people get off the couch and start raising money with the potential to get matching funds).

So where will this money go? It seems like most of it will go to V.C.s who really don't make investments in Florida - but now "suddenly" see the opportunity because they can take some of the State's money. Maybe some of it will go to local funds - but who? There is only one true VC Fund in Florida (Inflexion) and only 3 organized Angel funds (Startup Florida, Emergent and Springboard). Of course there may be more out there - but I haven't run across them, and certainly haven't seen them actively sharing deals.... but who knows?

Even if there are other Angel funds, I don't expect a lot of the 30M going to them, because the fund can only invest up to 50% of the total fund. So I would estimate (maybe) 3M will go to Angel funds (each fund getting 250k-500k?).

So does this solve the problem of Florida? No.

Will this help startups and early-stage companies get funded? No.

Will this make out-of-state VCs look at Florida? Sure. Only because they have to. But they will claim there are no "mature deals" and sit on the money.

So what will this Florida Opportunity Fund do? It will go to VC's (mostly out of state) who will sit on the money - wait for deals that meet their criteria - and find their are none.... because (surprise) we lack the angel capital to bridge (see cartoon above) these deals to be VC ready.

Think about it....here are the scenerios

1. Scenerio A: I am a managing partner of a 200M fund in Boston. I get 1.5M from Florida to look at Florida deals. Do you think I am going to really care about Florida? Maybe I open a 200 sq.ft office in Orlando, and have a MBA student look at Plans, and every once in a while, hear a pitch....

2. Scenerio B: I am an Angel Fund in Florida, and I raise 1-2M amongst angels, and I get 300k from the Florida Opportunity Fund. Whooopee! Where am I going to invest all this new money?

3. Scenerio C: I am a VC Fund in Florida and get 2M from the Florida Opportunity Fund - GREAT!!! but how do I raise the rest of the money to close my next fund? Who the hell in this environment is going to invest in a VC fund in Florida?
(excuse my rant)

Maybe I am not seeing the big picture.... but I think I have "some" experience in funding companies, growing startups and building businesses in the State of Florida. So I only can offer my opinion.

(If anyone cares.... here is what I would do with the 30M)

1. I would fund all Angel Funds associated with Universities (e.g. Emergent). I would invest 1-2M into each Angel Fund, with a requirement they invest 100% in Florida Companies. I would formalize a link between the Tech Licensing offices to these funds, and close the gap between Research (in Universities) and Commercialization. This would be around 10M of the 30M (if we did 5 major universities)

2. I would pick 2 to 3 Major Venture Funds and invest 5M into each one but require them to open and staff an office in Florida. I would require them to have a Managing Partner in Florida full-time. I would require them to invest 10% of this money annually at a minimum. If these funds are big funds, they will draw other smaller funds to move to Florida. They would also be able to lead big rounds of investment and draw from other out-of-state funds, and give other funds a high comfort level to invest in Florida if the "big" fund has smart people here watching the deal. You don't need 10 big funds in Florida... you just need a few to start to show a presence. (BTW, this is not unlike what the past Governor did with Scripts)

This would cost 10 to 15M (5M in each fund)

3. With the rest of the money - I would create a Micro-Loan that issues loans to startups / emerging companies that need up to 50k and don't need 1M-2M to launch. This would be secured by assets/stocks/personal guarantees - but be more flexible than traditional SBA loans. I would use the Angel Funds and VC funds as channels to refer deals for the micro-loan program... This way if an entrepreneur needs 20k to buy equipment, they can get started, and potentially later raise money from the Angel funds (100k-250k) or from VCs (1M+).

I believe this approach solves a bigger problem in Florida which is 1) There is no gap funding 2) There is no name brand VCs to validate the State and 3) There is no seed funding.
(sigh)
I said my piece. I will go back to my garage.... and work on the next startup.

2 comments:

Dennis said...

The Florida Opportunity Fund has yet to commit any funds - despite it being authorized 2 years ago under Jeb Bush's administration!

Now its on life support:

http://www.flsenate.gov/Session/index.cfm?Mode=Bills&Submenu=1&BI_Mode=ViewBillInfo&Billnum=1644&Year=2009

Robert said...

Rich,

Please contact me. We have an active angel fund in Northwest Florida and I would like to chat with you about our experience with the FOF Application Process.

Thanks,

Robert